What do you guys do in a buyers' market?

I know the question may be too general to be answered with specifics, but I’ll give it a shot. The market I’m in is saturated with houses for sale and practically no buyers. The prices are still to high as sellers have been reluctant to come down thus far. Foreclosures, however, have absolutely skyrocketed. In a neighboring town, they are up over 120% from last year, and that’s just through June!

A couple things seem obvious at this point:

  1. Buy and flip seems unreasonable unless one can get a house way under arv, like 50% or more.

  2. Buy and rent may work because there are not many vacancies right now and rents remain high. One problem is that multi-families are still on sale at inflated prices, and there are no pending foreclosures on these. I’m not sure that single-family rentals would work around here.

At this point, it just seems like buy and hold (rent) is the way to go. I have a feeling this is going to be the most talked about issue among many beginners over the next couple of years.

In a buyers market you can get some great equity deals, sell to folks needing help such as downpayment assistance or owner financing. Look at it this way you have a property with a market value of say 100k and you can get this property say for 75k and turnaround and do 100% owner financing at a rate of 9% with a 3 year balloon for example you can make great profit if you manage well.

Let’s say you have 82K into the total project

In 3 years, the payoff would be 97,752
Payments received 28,966

Total gross return $126,718

You are looking at a gross return on investment of around 55% or around 18.3% per year not bad.

I have a feeling this is going to be the most talked about issue among many beginners over the next couple of years.
I believe your right. In a slow market you have to know what your doing to make money. You can't just rely on getting a property under contract and by the time closing comes around the property has appreciated 30-40k. That's the reason why most markets are saturated with investors now. I will be happy to see them all go! I rehab during every market condition and gain more ground during buyers markets because this is when my competition goes back to their regular day jobs.

A crazy good rule of thumb for investors who hold properties:
Buy in a buyers market
Sell in a sellers market
This is a good time to start accumulating.

That is pretty much what I figured. Now, if you’ll just loan me some money without interest, I can… :slight_smile:

Actually, the great thing is that prices will have to slip, unless people as a whole really just refuse to lower their prices, like the following:

4/2.5 (easy potential for a 5th bed)
2002 sq ft
front deck, back patio, back porch off the second floor
everything needs updating: roof (40 years old), paint in and out, new kitchen, bathrooms, refinish floors, etc.
who knows about hidden problems, plumbing, electrical??
basically, no one has touched the house for about 30 years.

it was owned by an old woman who had a heart attack last year and moved to a nursing home. her kids have urged her to sell, but she was reluctant until now. they want $290,000!! comps in the area arv are around $320,000 right now - will be worse by next year I think.

The price on that property would have to slip like 50-60k for it to be worth getting out of bed.
In a 2000 sq ft house a 5th bedroom will be money down the drain. I would add a bathroom before a bedroom and I would not add the bathroom.
Don’t try to negotiate with the stubborn old woman. Convince her kids to have the her deed them the property and then negotiate with the kids. I can’t imagine they want to get stuck paying taxes on it.

i agree. in fact, my estimate was for around 210,000-215,000 tops for this amount of work.

thanks for the advice on dealing just with the kids.

Can someone explaine in further detail the workings of owner financing? If I offer financing to a buyer how will this transaction/sale effect my loan? I’m assuming the buyer, since they are buying, will want to deduct the taxes and intrest on their taxes, how does a deal like this get done?


The Land Contract also known as a Contract for Deed or in some parts of the country, Installment Contract is designed as an agreement between the Seller and the Buyer for the purchase of real property in which the payment of all or a portion of the purchasing price is deferred. They can be created on or used on most types of property: Residential, Land Only, Mobile Home with Land, Commercial, and other Mixed Uses.

The purchase price may be paid in installments over the period of the contract, with the balance due at maturity. When the Buyer completes the required payments, the Seller must deliver valid legal title by way of a deed. During the period of the contract, the Buyer makes installment payments on the purchase price and is entitled to possession and equitable title to the property. The Seller holds legal title and continues to be liable for payment of any underlying mortgage or loans.

The Buyer may assign and convey his/her interest in this “Contract” or any part thereof provided, however, that such assignment or conveyance should not result in any impairment of Seller’s position. Under no circumstances shall any assignment or conveyance release the Buyer from obligations under this “Contract” unless the Seller specifically releases the Buyer in writing.

A contract for deed sale will allow you to collect interest payments, which are generally more than you could collect in rent.

From this point on when we use the term “Land Contract”, we are also talking about Contract for Deed’s, Installment Contract or any other title used. It’s all owner finance!

A long-term installment land contract is both an instrument of transfer and a method of finance. It is an agreement to transfer land ownership in exchange for a comparatively small down payment and a series of principal and interest payments. The size and number of payments depend on the total price of the property being transferred, frequency of payments, number of years specified in the contract, the interest rate, and whether a large (“balloon”) payment is called for at the end of the contract period.

Transfer of ownership is on a conditional basis. The seller does not transfer formal title to the buyer until the last installment or an agreed upon portion of the purchase price has been paid. Before transfer of title, the buyer has the use, possession, and control of the property, and the buyer generally bears the duties and responsibilities of ownership, although the seller still holds title to the real estate.

Seller Financing for a Home

If you are having, trouble getting traditional financing than seller financing is a great way to get into the real estate investing game.

  1. If the seller doesn’t need all the cash from the sale of the property to buy another home, he or she might be willing to offer you seller financing. We suggest looking for none owner occupied properties when making this type of offer.

  2. You will need to research the property to determine it’s value by getting at least 3 sold comparables that are like your property within the last 6 months if possible.

  3. Find out if the seller still owes anything on the property. If the property has no liens against it, the seller could also act as the lender in the transaction; payments would be made to the seller, not to a mortgage lender or banking institution. You can still do this with properties have mortgages and liens, but no mortgages and liens are best.

  4. Make an offer to the seller. Make it clear that you want the seller to finance the purchase. In your offer you may want to include, an appraisal contingency to make sure the property is worth what you’re paying.

  5. Handle the purchase agreement just as you would with a regular lender, only you’ll be the one to offer what terms you want: how much you want to finance (this depends on your down payment), how long you want to finance and what interest rate you want to pay. Of course, the seller must agree to your offer. Use a purchase agreement and receipt-for-deposit form.

  6. You can open an escrow account with a title company or have a real estate attorney handle the transaction if you wish, but most likely, your seller will want you to pay any fees involved with this. You do not have to take this direction in the deal as it only provides you a better form of protection.

The installment land contract is known by several names, such as, “contract for deed,” “bond for deed,” “conditional sale of real estate,” “contract for sale of land,” and “land contract.” It is commonly called an “installment land contract,” and is distinctly different
from a binder contract, or earnest money contract.

The binder contract is used:

• To hold property off the market until the prospective buyer can obtain needed money to close the deal. What are they?
• To bind an agreement until the seller produces proof of title.
• To bind an agreement until some other condition necessary for the final sale agreement is met.

The term of the binder contract is usually quite short and ends with the final closing of the deal. In contrast, the time period covered by the installment land contract is usually 5 to 10 years, or longer.

Land Contracts are a form of owner financing of real estate. An owner and a buyer enter into a contract in which the owner agrees to give the buyer a deed after the buyer pays the owner a certain amount of money. Usually the contract requires the buyer to make payments over time with interest payable on the unpaid balance. After the buyer pays all of the payments called for under the contract, the owner gives the buyer a deed to the property. During the term of the contract for deed, the buyer is entitled to possession of the real estate and may be required to keep the property insured and pay the real estate taxes, or reimburse the Seller for same.


*Closing costs are usually low.
*Other financing may not be available for Buyer due to credit issues or lack of funds.
*Seller may gain interest income.
*Interest terms may be more favorable than conventional rates.

  • Younger Buyers may not find other sources of financing.


*Process of foreclosure (or cancellation of a contract for deed) may be shorter than foreclosure of mortgage. This may be an advantage to the Seller.

  • Property may be depreciated in value after cancellation and repossession by Seller.
    *If there is a mortgage on the property, the contract may violate a due-on-sale clause in the mortgage, which the lender may or may not seek to enforce.
    *Buyer may lose investment payments that are made and then the Buyer loses the home. Of course, this may also apply in a mortgage situation.

All states require that a contract concerning real estate, like a Land Contract, must be in writing. In all States a contract may be recorded to evidence the agreement. However, sometimes the parties do not want the terms of their agreement disclosed and therefore do not record the contract. As a buyer under a contract such as this, you should have the document recorded to protect your interest!

Possible Problems:

*Seller may not pay existing mortgages and result in foreclosure. To assist, the contract may contain a provision obligating the Seller to pay the mortgages.

*Buyer loss of investment. The contract may contain a reinstatement provision to protect the Buyer from being prematurely evicted.

The Basics

An installment land contract should always be in writing. State laws require that all contracts for sale of land be in written form in order to reduce the possibilities of misunderstanding between the seller and buyer.

Minimum Legal Requirements

The minimum information legally required in the written agreement includes:

  • Identification of the seller and buyer.
    *An adequate description of the property.
    *The purchase price or other consideration.
    *The parties to the contract who are obligated by the agreement must be identified by their legal names.
    *The seller’s spouse and any other party who has ownership interest in the property should be included in the contract so the buyer will be guaranteed the participation of the spouse in the later transfer by deed.
  • The land description is adequate if the land can be located by referring to the installment land contract. The description should be a formal, legal one. Usually this description is in terms of the Rectangular Survey System, also called the government survey method, using sections, townships, and ranges.

The total price agreed to by buyer and seller must be stated although the exact conditions of the payment need not be specified. It is highly recommended, however, that such terms be spelled out in detail to avoid controversies.

*Signatures - Signatures of all parties named in the land contract should be obtained. If a corporation acts either as seller or buyer, the instrument must be signed by an officer with proper corporate authority, and in some states, the corporate seal should be affixed. If a partnership is the buyer or seller, all partners should sign the contract. If the contract is to be recorded, the signatures should be made before a notary public or otherwise acknowledged.

*Sufficient copies of the installment land contract should be made so each signer can have a copy.

*The original is usually returned to one of the parties after it has been recorded.

Title insurance is sometimes used to assure the buyer of adequate title to the property in lieu of the attorney’s review of the abstract of title. This form of insurance is not available nor is it legal in all states, however. Title insurance is usually based upon an
examination of the record title, either by a lawyer or experienced lay personnel. If title insurance is used, the buyer should realize the insurance company is simply stating that it will pay the buyer the face amount of the policy (usually equal to the price paid for the property), under certain conditions, if the title is not good.

Seller Advantages and Disadvantages

For the Seller one of the primary advantages for the seller is the spreading out of the tax reporting of capital gains from the sale over the period of the contract rather than all in the year of sale.

Let’s say you purchased a home many years ago for $50,000 and last year you sold it for $125,000 you would be faced with a capital gain of $75,000. If you took the same property and sold it under installment terms you would only be taxed on the capital equivalent to the payment on the principal reported each year.

Although this method does not alter the total amount of capital gains to be reported, it usually results in a significant tax savings to the seller. An example of this advantage will be illustrated later.

Installment-sales tax qualification is automatic for persons who are not dealers (with some exceptions) when an installment sale occurs, as long as at least one payment is received in the tax year following the year of sale and the seller does not elect to report the entire gain at once (Form 4797 or Schedule D, Form 1040).

Reporting the entire gain may be beneficial if the seller wants to utilize capital losses occurring that year against these gains.

Any contract to sell on an installment basis should include a provision for either a minimum of a 9% per year interest rate on the outstanding balance or else the Applicable Federal Rate (AFR; published monthly by the IRS and based on market yields of U.S.
securities) whichever is lower. Federal law allows a minimum of 6% interest (compounded semiannually) for installment sales between family members not exceeding $500,000.

Installment contracts without a specification for interest or a specification less than the minimum required will have an interest rate of the lesser of 9% compounded semiannually (6% for transactions between family members) or the applicable federal rate imputed by the IRS. The amount of the payment imputed as interest will reduce the sales price accordingly and be treated as ordinary interest income to the seller and an expense to the buyer.

As mentioned earlier, reporting capital gain on an installment basis can be very beneficial to the seller.

The earlier example had an individual selling a property on contract for $125,000
which was previously bought for $50,000. It will be assumed the property had no mortgage and the selling expense is limited. Furthermore, the contract calls for an installment contract can be beneficial for both the seller and buyer if it has been properly
prepared. A poorly drafted contract could result in difficulties that continue for years.

Both the buyer and seller should examine carefully the possibilities and limitations of the installment land contract before committing themselves to such an arrangement. This should be done with the help of separate attorneys.

Considerations in Preparing the Installment Land Contract

Under the installment land contract, the seller retains legal title to the property as security for performance by the buyer. The buyer acquires “equitable ownership” in the land, and for all practical purposes, is considered the new owner.

The buyer usually is free to add or alter any improvements and use the property in any
manner that will not reduce the property value. The buyer also has the right to sell his or her interest in the property, subject, of course, to provisions in the contract. Although printed contract forms are sometimes available, caution should be exercised in using such
forms because they may not be tailored to the particular needs of the buyer and seller.

If the seller dies during the contract period, the unpaid balance of the land contract is treated as an asset in the gross estate. Payments received by beneficiaries on the contract were treated as “income in respect to decedent” and reported in the same manner as if the decedent were living.

If the land contract buyer receives part or all of the contract upon the seller’s death, the portion that is received is treated as if it were purchased from the decedent’s estate. Therefore, the estate must report the gain on the portion received. The contract does not receive a new or “stepped-up” basis at the time of death of the seller.

Such a provision would help safeguard the seller’s security interest in the property.

A standard provision in installment land contracts states that the heirs and assignees of the parties are obligated to the contract provisions just as if they were the original buyer and seller.

The installment land contract is both an instrument of transfer and a method of financing sales of land. If properly drawn, it can have a number of advantages for both the buyer and seller.

Both parties should contact their attorneys to be sure that the terms of the contract are clearly stated and understood.

Land purchase by means of an installment contract permits the buyer to acquire property with a comparatively small amount of initial capital.

The smaller the down payment, however, the greater the possibility that full payment or principal and interest due in succeeding years could be burdensome in years of low net income.

If cash flow projections indicate that principal and interest payments can be made on schedule, purchasing land by means of an installment contract gives a greater security and a much better basis for developing improvements appropriate to the property involved involved.

Changes in land values accruing after the contract is signed usually belong to the buyer.

One of the principal advantages for the seller has to do with income taxes due on capital gains can be realized from the sale of property. If the sale qualifies for installment-sale tax treatment, the capital gain can be reported for income tax purposes on an installment
basis with income tax payments made accordingly.

Usually, the sum of the income tax payments made on a capital gain reported on an installment basis will be less than if the gain were all reported in one year.

The installment land contract also is useful to sellers from an estate planning standpoint.

It can be used to “freeze” the size of the seller’s estate and as a means of transferring property from one generation to another.

Although the legal requirements of an installment land contract may be minimal, both buyers and sellers should be aware that many other provisions can be included, which may have both desirable and undesirable features.

Just a little 101 on this

Good luck

Just be advised of the state/local laws where you plan to do any unconventional financing. For example, be careful if you plan to do CFD’s in the state of Texas.